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  1. Point in time
    2024-07-16

CMCOB 2.1 General principles

CMCOB 2.1.1R

1A firm must act honestly, fairly and professionally in accordance with the best interests of its customer (the client’s best interests rule).

CMCOB 2.1.2R

1A firm must establish and implement clear, effective and appropriate policies and procedures to identify and protect vulnerable customers.

CMCOB 2.1.3G

1Customers who have mental health difficulties or mental capacity limitations may fall into the category of particularly vulnerable customers.

CMCOB 2.1.4R

1A firm must not engage in high pressure selling in relation to regulated claims management activity.

[Note: CAPR CSR 3]

CMCOB 2.1.5R

1A firm must not carry out a cold call in person.

[Note: CAPR CSR 4]

CMCOB 2.1.6G

1CMCOB 2.2 sets out further rules and guidance in relation to generating, obtaining, and passing on leads.

CMCOB 2.1.7R

1A firm must not make or pursue a claim on behalf of a customer, or advise a customer to make or pursue a claim, if the firm knows or has reasonable grounds to suspect that the claim:

  1. (1)

    does not have a good arguable base; or

  2. (2)

    is fraudulent; or

  3. (3)

    is frivolous or vexatious.

CMCOB 2.1.8G
  1. (1)

    1A firm should take all reasonable steps to investigate the existence and merits of each element of a potential claim before making or pursuing the claim or advising the customer themselves to make or pursue the claim.

    [Note: CAPR GR 2(a)]

  2. (2)

    In accordance with Principle 1 (Integrity) and Principle 2 (Skill, care and diligence), the firm’s investigations should be such that it is able, in presenting a claim, to make representations which:

    1. (a)

      substantiate the basis of the claim;

    2. (b)

      relate to the nature of the claim and are specific to the claim; and

    3. (c)

      are not false or misleading, or an exaggeration-

  3. (3)

    In complying with CMCOB 2.1.7R firms should have regard to:

    1. (a)

      relevant guidance, including about their decisions, published by the Financial Ombudsman Service, any other relevant statutory ombudsman, or statutory compensation scheme; and

    2. (b)

      decisions by the Financial Ombudsman Service, or any other relevant statutory ombudsman, or statutory compensation scheme concerning similar claims in respect of which the firm acted for the claimant to whom the decision was addressed.

CMCOB 2.1.9R

1A firm must publish on its website (if it operates a website) the standard terms and conditions of the contracts it enters into with customers.

[Note: CAPR CSR 11]

CMCOB 2.1.10R

1A firm must not take any payment from a customer until the customer has signed an agreement with the firm which provides for such a payment to be made.

[Note: CAPR CSR 11]

CMCOB 2.1.11G
  1. (1)

    1CMCOB 2.1.10R prohibits a firm from taking a payment from a customer before the customer has signed an agreement with the firm. It is not sufficient for the firm to enter into an agreement with the customer orally for this purpose: the agreement should be signed.

  2. (2)

    The signature should be on a hard copy of the agreement which may be given or posted to the firm, else sent by fax, or scanned or photographed and sent electronically. Alternatively, the customer could insert a digital image of their handwritten signature into an electronic copy of the agreement before returning the agreement to the firm by email.

  3. (3)

    The FCA would not view an agreement as having been signed for the purposes of CMCOB 2.1.10R where the customer does no more to indicate their acceptance of the firm’s terms and conditions than to send a text message or email or to tick a box on a website or web-based form.

  4. (4)

    The firm will also need to have complied with the requirements of CMCOB 4 (Pre-contractual requirements), including the requirement to take reasonable steps to ensure that the customer understands the agreement (see CMCOB 4.3.1R(3)). Where an agreement is entered into electronically, those steps should include the firm satisfying itself that the customer has had the opportunity to familiarise themselves with the contract.

CMCOB 2.1.12R
  1. (1)

    1This rule applies in respect of an agreement entered into between the customer and the firm under which the firm is to provide claims management services.

  2. (2)

    The firm must:

    1. (a)

      allow the customer to cancel the agreement during a period of 14 days beginning on the day that the agreement is entered into; and

    2. (b)

      permit the customer to terminate the agreement at any time after that period.

  3. (3)

    Where the customer cancels an agreement under (2)(a), the firm must provide the customer with a refund of any payments made to the firm.

  4. (4)

    Where the customer terminates an agreement as in (2)(b), the firm must not charge the customer an amount in excess of what is reasonable in the circumstances and reflects the work undertaken by the firm.

  5. (5)

    This rule:

    1. (a)

      does not apply if regulation 8 (Terms and conditions of termination in an employment matter) of the Damages-Based Regulations 2013, or any equivalent provision made under the law of Scotland, applies; and

    2. (b)

      is subject to:

      1. (i)

        CMCOB 2.1.13R and CMCOB 2.1.14R; and

      2. (ii)

        the claims management fee cap (see CMCOB 5).

[Note: CAPR CSR 17 and 18]

CMCOB 2.1.13R
  1. (1)

    1A firm must not charge a fee to a customer in relation to a financial services or financial product claim before the provision of a claims management service to the customer other than seeking out, referrals and identification of claims or potential claims. [Note: CAPR CSR 15]

  2. (2)

    This rule is subject to CMCOB 2.1.14R.

CMCOB 2.1.14R
  1. (1)

    1A firm must not charge a fee to a customer in relation to a claim in respect of a payment protection contract prior to the later of:

    1. (a)

      the customer withdrawing or deciding not to pursue the claim; or2

    2. (b)

      the settlement of the claim.

  2. (2)

    A firm must not charge a fee to a customer in relation to a claim in respect of a payment protection contract if there was no such contract between the customer and the person whom it was alleged was the counterparty to the contract.

[Note: CAPR CSR 15 and 16]

Requirements relating to firms with relevant connections to the claim or potential claim

CMCOB 2.1.15R
  1. (1)

    3A firm must not carry on the regulated activity of seeking out, referrals and identification of claims or potential claims in relation to a claim or potential claim if:

    1. (a)

      the firm has a relevant connection to the claim or potential claim; and

    2. (b)

      if valid, the claim or potential claim would be a protected claim.

  2. (2)

    A firm must not carry on the regulated activity of advice, investigation or representation in relation to a financial services or financial product claim in respect of a claim, or potential claim, to the FSCS, if the firm has a relevant connection to that claim or potential claim.

  3. (3)

    The prohibition in (2) does not apply to regulated claims management activity carried on pursuant to an agreement entered into before 7 July 2022 except where:

    1. (a)

      the regulated claims management activity is carried on in relation to a claim or potential claim which was added to the agreement after the date above; or

    2. (b)

      the customer’s first authorisation or instructions to the firm to act in relation to the claim or potential claim were given after the date above.

CMCOB 2.1.16G
  1. (1)

    3Relevant connection is defined in CMCOB 2.1.17R(1) to (5). That definition refers to FSCS-eligible activities. That term is defined in CMCOB 2.1.17R(6).

  2. (2)

    Activities which could give rise to a protected claim are the activities referred to in COMP 5.2.1R, when carried on by a participant firm, or an appointed representative of such a firm. Those activities include, for example, the regulated activities which constitute designated investment business (referred to as part of the definition of protected investment business in COMP 5.5.1R(1)).

CMCOB 2.1.17R
  1. (1)

    3A firm has a relevant connection to a claim or potential claim for the purposes of CMCOB 2.1.15R if one of the conditions in (2) to (4) is met.

  2. (2)

    A person who is:

    1. (a)

      a member of the firm’s governing body;

    2. (b)

      a controller of the firm; or

    3. (c)

      an employee of the firm,

    was directly involved in, or responsible for the carrying on of, the FSCS-eligible activity giving rise to the claim or potential claim.

  3. (3)

    An individual ‘A’, who is:

    1. (a)

      a member of the firm’s governing body; or

    2. (b)

      a controller of the firm,

    is related to an individual ‘B’ who was directly involved in, or responsible for the carrying on of, the FSCS-eligible activity giving rise to the claim or potential claim.

  4. (4)

    The firm, or a member of the firm’s governing body, has provided, or agreed to provide, a financial benefit to a person who was directly involved in, or responsible for the carrying on of, the FSCS-eligible activity giving rise to the claim or potential claim.

  5. (5)

    A is related to B for the purposes of (3), and CMCOB 2.1.21R(5)(b), if:

    1. (a)

      A is B’s spouse or civil partner;

    2. (b)

      A’s relationship to B has the characteristics of the relationship between spouses or civil partners; or

    3. (c)

      A is B’s parent, brother, sister, child, grandparent or grandchild (including step-relations in these categories).

  6. (6)

    An activity is an FSCS-eligible activity for the purposes of CMCOB 2.1.15R to CMCOB 2.1.22G if it falls into one of the categories of activity which could give rise to a protected claim.

CMCOB 2.1.18G
  1. (1)

    3For the purposes of CMCOB 2.1.17R to CMCOB 2.1.21R:

    1. (a)

      a person is not directly involved in, or responsible for an activity if the person has a purely administrative or support function (e.g. IT support);

    2. (b)

      a person may be responsible for the carrying on of an activity without being approved as an SMF manager;

    3. (c)

      a person may be directly involved in or responsible for the carrying on of an activity if they are an appointed representative of a participant firm;

    4. (d)

      an independent contractor may be directly involved in or responsible for the carrying on of an activity; and

    5. (e)

      firms are reminded that the glossary definition of employee includes independent contractors.

  2. (2)

    For the purposes of CMCOB 2.1.17R(4), the financial benefit could be provided while the firm carrying on the FSCS-eligible activity is still a going concern.

  3. (3)

    An activity may be an FSCS-eligible activity regardless of whether it has given rise to a claim or potential claim.

CMCOB 2.1.19G
  1. (1)

    3The prohibition in CMCOB 2.1.15R(2) means that a firm cannot carry on the regulated activity of advice, investigation or representation in relation to a financial services or financial product claim in respect of a claim, or potential claim, to the FSCS, if the firm has a relevant connection to that claim or potential claim.

  2. (2)

    In some cases, CMCOB 2.1.15R(2) will have the effect of requiring a firm to stop managing a claim where it has already started carrying on regulated claims management activities in relation to the claim or potential claim. For example, this could happen where the firm to which an existing claim relates becomes insolvent and the customer’s claim becomes one to the FSCS as a result.

CMCOB 2.1.20R

3Where a firm is required to stop carrying on regulated claims management activity in relation to a claim or potential claim as a result of CMCOB 2.1.15R, the firm must take the steps in (1) to (5) within 5 business days of becoming aware of the circumstances which result in the firm being required to stop carrying on regulated claims management activity in relation the claim or potential claim:

  1. (1)

    notify the customer they have ceased managing the claim and explain why;

  2. (2)

    explain to the customer what options are available for them to continue with their claim;

  3. (3)

    explain to the customer that they may be able to make their claim to the FSCS;

  4. (4)

    provide the customer with a link to the FSCS webpage; and

  5. (5)

    explain that the customer is not required to use the services of a claims management company to pursue their claim and that it is possible for the customer to present the claim themselves for free.

CMCOB 2.1.21R
  1. (1)

    3This rule applies to a firm which carries on, or has permission to carry on, the regulated activity of:

    1. (a)

      seeking out, referrals and identification of claims or potential claims; or

    2. (b)

      advice, investigation or representation in relation to a financial services or financial product claim.

  2. (2)

    A firm to which this rule applies must provide annual notifications to the FCA, containing the information set out in (3) to (6), about its connections to FSCS-eligible activities.

  3. (3)

    The notification must cover any individual who is:

    1. (a)

      a member of the firm’s governing body;

    2. (b)

      a controller of the firm; or

    3. (c)

      an employee of the firm; and

    is or was directly involved in, or responsible for the carrying on of, an FSCS-eligible activity.

  4. (4)

    For an individual described in (3), the notification must contain:

    1. (a)

      the name of the individual, and individual’s role in the firm providing the notification;

    2. (b)

      the name of the firm at which the individual is or was directly involved in, or responsible for the carrying on of, an FSCS-eligible activity; and

    3. (c)

      the individual’s role at the firm described in (b), and the dates between which the individual performs or performed that role.

  5. (5)

    The notification must also cover any individual ‘A’ who:

    1. (a)

      is a member of the firm’s governing body or is a controller of the firm; and

    2. (b)

      is related to an individual ‘B’ who is or was directly involved in, or responsible for the carrying on of, an FSCS-eligible activity.

  6. (6)

    For an individual described in (5), the notification must contain:

    1. (a)

      A’s name and role in relation to the firm providing the notification;

    2. (b)

      B’s name, and the relationship between A and B;

    3. (c)

      the name of the firm at which B is or was directly involved in, or responsible for the carrying on of, an FSCS-eligible activity; and

    4. (d)

      B’s role at the firm described in (c), and the dates between which B performs or performed that role.

  7. (7)

    The first notification submitted by a firm under CMCOB 2.1.21R must.

    1. (a)

      be submitted within 60 business days of the later of:

      1. (i)

        7 July 2022; and

      2. (ii)

        the date on which the firm is first granted permission to carry on the regulated activities specified in (1); and

    2. (b)

      cover the previous 6 years (including whether any individual described in (3) or (5) was directly involved in, or responsible for the carrying on of, an FSCS-eligible activity within the previous 6 years).

  8. (8)

    After the first notification is submitted in accordance with (7), all future notifications under CMCOB 2.1.21R must be submitted by a firm, within 30 business days of the firm’s accounting reference date, in accordance with SUP 16.25.

  9. (9)

    When submitting a notification under CMCOB 2.1.21R, firms must report all instances of relevant connections which occurred at any point during the reporting period even if those individuals are no longer relevant connections, e.g., because the individual is no longer employed by the firm at the time the notification is submitted.

CMCOB 2.1.22G

3The requirement to provide a notification under CMCOB 2.1.21R applies in relation to an FSCS-eligible activity regardless of whether such activity has led to a claim or potential claim.